McCreevy vows to make retail banking integration a priority

THE Internal Market Commissioner Charlie McCreevy has said that the integration of retail banking markets will be one of the priorities of his five-year mandate. He will issue a proposal on cross-border retail payments and make “concrete suggestions” for moving towards a single market in mortgage loans by the Summer of 2005.

At a conference held by the European retail banking association ESBG on 8 December, McCreevy said that retail markets were increasingly vital to Europe’s competitiveness.

“Business lines like retail banking have become at least as important in the EU economy as the sometimes highly profitable but more volatile wholesale lines,” he said.

“What I would like to work towards over the next few years is an integrated EU retail banking market, where those consumers who wish to can actively shop across borders for financial services product.

“But more than this; we envisage a market in which EU financial institutions either target foreign consumers on a cross-border basis – via the internet, via financial brokers etcetera – or offer their services via locally established branches or local intermediaries.”

The Commission will present its strategy for retail financial services in its ‘post-FSAP’ (Financial Services Action Plan) communication, which will give the next steps after the near completion of the FSAP which aimed to create a single market in financial services by 2005.

An ESBG report, released at Wednesday’s conference, warned against the dangers of too much consolidation in retail banking. The Commission announced in September that it would amend an EU banking law to make it more difficult for national authorities to block cross-border banking mergers.

The report criticized the “bias” among policymakers that financial integration is automatically good for Europe, highlighting studies that have shown that “there is nothing intrinsically or self-evidently good about banking consolidation and it should be discussed in a more balanced, less idealized way.”

One study in particular, carried out by the Centre for European Policy Studies, showed that while efficiency gains are part of the driver behind the recent wave of banking mergers, there were often other reasons including defensive action against a potential takeover, personal interest or market impetus.

The ESBG argues that none of these reasons points to added value for the shareholder or the customer.

Social exclusion is one of the main risks of consolidation to consumers, it says, as merging banks close smaller, more peripheral outlets.

And there is also a risk for shareholders that consolidation might lead to the assumption that banks are “too big to fail”. Banks holding this “implicit guarantee” might, the report says, take on more risk than they should.

Chris De Noose, chairman of the ESBG’s management committee, said that the industry should be “very cautious in asking for consolidation-specific regulation or changes in regulation to be put in place to encourage it” and called on the Commission to “consider all aspects of the ongoing debate on banking consolidation”.

But McCreevy said that the Commission rejected “any blanket assumption that markets for all financial products should remain purely local”.

He insisted that he would “consult widely, identify areas where our intervention is needed and carry out a thorough cost-benefit analysis of proposed measures before launching our policy”.